Judge blocks payment to Crystal Merry-Go-Round's ex-CEO won't get sum until case is reviewed

March 22, 1996|By Mark Guidera | Mark Guidera,SUN STAFF

A U.S. Bankruptcy Court judge granted an injunction yesterday blocking Richard P. Crystal, the former chief executive officer of the failed Merry-Go-Round clothing chain, from getting a $1.9 million payment he says he's owed under his contract.

The U.S. Trustee Office, which is overseeing the liquidation of the once high-flying clothing retailer, sought the injunction, arguing that Mr. Crystal shouldn't be allowed to withdraw the money until the trustee has had time to present to the court evidence on several key issues tied to the liquidation of the company and Mr. Crystal's performance as CEO.

The company collapsed Feb. 2 after a two-year struggle to pull out of bankruptcy. Mr. Crystal, a veteran merchant from New York, took over Joppa-based Merry-Go-Round Enterprises Aug. 1.

U.S. Bankruptcy Judge E. Stephen Derby said at a hearing on the injunction request yesterday that he found Mr. Crystal would suffer "no material harm whatsoever" if blocked from immediately calling due the $1.9 million lump sum payment.

On Thursday, Mr. Crystal was named president and chief executive officer of another apparel chain, Lerner New York, a division of Limited Inc.

The lump sum payment was established as part of Mr. Crys- tal's contract when hired and guaranteed by a letter of credit in the event of Merry-Go-Round's liquidation.

The public interest in the case, said Judge Derby, would be best served by a full hearing on issues connected to Mr. Crystal's contract and the remaining assets of the company, rather than "by a premature determination to allow the assets to go out the door."

Judge Derby said he had determined that the creditors and others who had agreed to the contract with Mr. Crystal "were gambling with someone else's money, not their own" when they struck the deal.

Judge Derby said the injunction would be effective until June 14 30 days before the letter of credit agreement expires.

That, he said, should give the trustee and Mr. Crystal's lawyers enough time to make their cases concerning the contract and whether the former CEO should be allowed to collect the lump sum payment.

The U.S. Trustee has alleged in its case against Mr. Crystal that he produced unrealistic operating projections, shared those projections with creditors, and failed to exercise "the judgment and management skills required of a reasonably prudent corporation president."

Mr. Crystal's lawyer, John M. Callagy of New York, said at yesterday's hearing there is no evidence his client did anything malevolent as CEO.

While Mr. Crystal left the company in February, Price O. Gielen, attorney for the U.S. Trustee, informed the court that the trustee officially terminated him as CEO yesterday.

Judge Derby, though, ruled that Mr. Crystal could continue to draw on the salary he was guaranteed in his contract about $54,000 a month until at least the overriding legal issues in the liquidation are resolved.

Meanwhile, 15 former Merry-Go-Round employees who attended yesterday's hearing all of whom said they have not found new jobs said they were relieved by Judge Derby's rulings.

"I'm very satisfied with the judge's order," said Larry Belt of Baltimore. "This means that at least all the issues will be carefully examined and the assets will be safe."

Debbie Thacker of Timonium, another former employee at the hearing, said she thought the judge's decision was fair in light of the situation facing employees who lost their jobs, health benefits and severance pay in the collapse.

"We're not getting any more money so why should he?" she said.

During the hearing, Mr. Callagy argued that the trustee had no right to seek the injunction blocking Mr. Crystal from getting the lump sum payment. The payment, he argued, wasn't part of the company's assets, therefore the trustee could not seek to retain it.

Mr. Crystal, he argued, "bargained for the right to get this lump sum payment."

Mr. Callagy also argued that Mr. Crystal could suffer lost interest or investment gains if not allowed the payment now.

Mr. Gielen, attorney for the trustee, argued that Mr. Crystal shouldn't be allowed to get a "tremendous windfall despite his failure to reorganize the company."

"He was paid handsomely by Merry-Go-Round," and is now "attempting to double dip on the backs of Merry-Go-Round employees and its creditors," Mr. Gielen argued.

Pub Date: 3/22/96

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